School District Still Suffering After Settling L.I. Tax Fight

School officials here in this hilly, wooded village overlooking Long Island Sound breathed a collective sigh of relief today over the settlement of a $1.4 billion tax dispute announced Thursday by the Long Island Power Authority.

But while the $620 million agreement lifted the threat of a budget-breaking financial judgment that has hung over the Shoreham-Wading River School District for nearly a decade, the district still faces long-term problems bequeathed it by the ill-fated project that touched off the tax battle: the Shoreham nuclear power plant.

The plant, which the power company built in the mid-1970's, once paid hundreds of millions of tax dollars to the school district, which used the money to turn itself into an educational showcase, with extras like a demonstration farm and lighted tennis courts. But after environmental opposition prevented the plant from opening, the utility sued the district, the Town of Brookhaven and Suffolk County to recover the tax money it said it was overcharged, and the district has been cutting its staff and programs ever since.

Now the schools are trying to cope with increased enrollment, thanks in part to the reputation they earned during their prosperous years. And while the utility has helped soften the schools' loss of tax payments by reducing them gradually, the district will have to wean itself from that money entirely over the next two years.

The settlement announced this week -- in which the power authority reduced its demands on the district, Brookhaven and Suffolk County -- means the district owes nothing to the utility. The cost of the deal is being borne by electric ratepayers in Suffolk County.

''We're happy it's all over and our finances are back on a secure footing,'' said Edward M. Tronolone, superintendent of the district, which has 2,700 students. The school board voted today to approve the settlement, he said.

The agreement was forced by a ruling Tuesday by the state's highest court, the Court of Appeals, upholding a lower-court decision that the utility was entitled to $1.4 billion. That would have cost the school district $574 million -- a figure that even utility officials conceded the district could not pay.

''There was no way the 2,000 families in this district could come up with that kind of money,'' Mr. Tronolone said.

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For years, money had not been a problem. The Shoreham plant provided the schools with property taxes, even after the plant was decommissioned in 1989. At one point, the revenue from the utility paid for 90 percent of the school budget. Local property taxes were low, property values were high and the school district could afford innovative programs that were the envy of other districts on Long Island.

But since 1992, when the utility won its first judgment for tax overcharges, the district has been cutting about $3.2 million from its budget each year. This year's budget is about $32 million. Clerical and other support staffing has been trimmed, as well as maintenance and capital projects. At the same time, the average class size has increased to between 25 and 30 from 15. Teachers have been assigned to teach five and sometimes six classes, as opposed to four a day a decade ago. The demonstration farm was closed and lighting for the tennis courts ended; gone, too, are class trips, musical instruments and Hudson River sailing outings for biology students.

Despite the threat of higher taxes from the LIPA lawsuit, the district's good reputation and new housing construction have caused enrollment in the district's high school, middle school and three elementary schools to increase by 18 percent over the last five years, Mr. Tronolone said. As a result, school tax rates in the district are rising above the average for the county, and they are expected to top the list by the end of 2002, he said.

Among the district's lingering financial problems is $38 million in revenue it owes Brookhaven as a result of a separate tax dispute over the Shoreham plant.

The LIPA settlement will be financed with low-interest-rate bonds obtained by the utility. The bonds, in turn, will be financed by a 2 percent surcharge that was added to electric bills in Suffolk in recent years. How long the surcharge lasts depends upon the rate of interest on the bonds, officials said.

In addition, LIPA said it would continue to make payments in lieu of taxes to the school district. The utility began making the payments in 1992, when they were $30.4 million, reducing them by $3.2 million a year until they are eliminated in 2002.